Income Tax Case No: 11253

• Jurisdiction: South Africa
• Judge: Waglay J
• Judgment Date: 09 February 2006
• Docket Number: 11253
• Hearing Date: 20 October 2005
• Citation: 2006 JDR 0508 (CSpCrt)

Waglay J:

1.

The Appellant, an expatriate employee of A Company of the United Kingdom ("A UK") was assigned to A South Africa Limited ("A SA") for a period of two years as from 1 July 2000.

2.

The Appellant arrived in South Africa and commenced his South African assignment on or about 1 August 2000. His period of assignment was extended by 8 months and he left South Africa on 30 April 2003.

3.

The Appellant retained his United Kingdom residence, to which he intended to return, while assigned to A SA. He currently lives and works there.

4.

While the Appellant was in South Africa, A SA was obliged to pay him the salary which he would have earned had he remained in the United Kingdom, converted into South African rands. There was also an element in his salary that was payable by A SA (referred to in the schedule to the assignment agreement as "Base salary" and "Host element"). A SA was also obliged in terms of the assignment agreement to furnish the Appellant with residential accommodation for the duration of his period of assignment in South Africa.

5.

A SA complied with the terms of the assignment. With respect to the accommodation it was obliged to provide, it leased in its own name residential accommodation and paid the rental therefore while it was occupied by the Appellant for the period of his assignment.

6.

The Statement of Remuneration that A SA issued to the Appellant every month however reflected under the heading "Remuneration" amongst other items the following: "Rent allowance - taxable 27 034.48" and under the heading "Deductions": "Cheque issued 15 680.00", as also "Total tax...".

7.

The "Rent allowance - taxable" was in fact a notional amount calculated by taking the rental paid by A SA and grossing up this figure to reflect a notional pre-tax amount i.e. the rental payable by A SA was the sum of R15 680.00 and to obtain this amount after deduction of 42% the amount of R15 680.00 was grossed to R27 034.80. The cheque issued under deduction was thus the rent actually paid to the Lessor and the 42% of the "Rent allowance" was paid over to the Receiver of Revenue. The "Rent allowance" less the tax deducted thereon and the "cheque issued" equaled nil on the Statement of Remuneration. Thus no amount

2006 JDR 0508 p2

Waglay J

was physically paid by A SA to the Appellant by way of a "Rent allowance". What was provided to the Appellant was actual accommodation.

8.

The correspondence between the parties hereto point to the belief held by A SA that it would be "safer" to reflect the rental paid by it on the Appellant's Statement of Remuneration, pay the tax thereon and issue an IRP5 certificate in respect thereof.

9.

It also needs to be recorded that the Respondent has always had the practice of exempting tax on residential accommodation to assigned expatriates where their period of stay or assignment in the Republic is twelve months or less. In fact Respondent itself contends that this practice has been in place for many years and "can be regarded as part of our tax system".

10.

Against the above background, the Respondent issued assessments against the Appellant in respect of the amounts paid by A SA as rental on the grounds that:

(a)

The amounts paid for accommodation by A SA to the Lessor constituted receipts in the hand of the Appellant and were therefore taxable in terms of paragraph (c) of the definition of gross income in s1 of the Act;

(b)

alternatively the amounts were taxable as they constituted taxable benefits in terms of paragraph 2(d) of the Seventh Schedule of the Act read together with paragraph (i) of the definition of gross income in s1 of the Act.

11.

The Appellant objected to the assessment on the basis that his "usual place of residence" is not South Africa and as provided for in terms of paragraph 9(7) of the Seventh Schedule of the Act no value should be placed on the residential accommodation benefit that he received.

12.

Unable to persuade the Respondent of the validity of his objection Appellant appeals to this Court against the rejection of his objection

13.

The first issue is whether the Appellant received a housing allowance as contended for by the Respondent. The Respondent argues that having regard to:

(i)

the Statement of Remuneration which records "rent allowance" under remuneration; and

(ii)

the tax returns which reflect the provision of...